Monetary Policy and Stock Price Returns

Posted: 20 Jan 2004


Some studies have argued that monetary policy affects stock market performance over monthly or quarterly horizons, which has important implications for both investors and central bankers. Previous findings, however, are not robust to the sensitivity analysis reported here. For example, division of the sample period into subperiods and use of rolling regressions for the time-series data indicate that for the vast majority of countries (including the United States), the relationship largely vanished in more recent periods. Also, panel regressions that incorporate cross-sectional variance among the 16 countries suggest that the relationship between monetary policy and sotck returns is weak or nonexistent. Analysis of excess stock price return, as opposed to raw return, also indicates no relationship. Finally, alternative measures of monetary policy indicate no correlation between easing/tightening cycles and stock returns.

Keywords: Economics, relationship of economic activity to the investment process, Economics, macroeconomics

Suggested Citation

Durham, J. Benson, Monetary Policy and Stock Price Returns. Financial Analysts Journal, Vol. 59, No. 4, pp. 26-35, July/August 2003. Available at SSRN:

J. Benson Durham (Contact Author)

Cornerstone Macro LLC ( email )

1330 Sixth Avenue, 5th Floor
New York, NY 10019
United States

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